Franchise Business Basics

Franchise Business Basics

The Franchise Business has Lots of Moving Parts

The franchise business operates under its own rules both legally and in a practical sense for both franchisors and franchisees. In order to be successful over the long term, all players must conform or they stand a good chance of losing. While the legal rules of franchising are quite extensive and often subject to change, the practical and personal aspects of franchising remain constant but often overlooked.

First the Law

It’s old news to say that 1979 saw the Federal Trade Commission’s first major entry into franchising, but it’s never old news to state the importance of this change. The guidelines set forth required uniform disclosure of certain elements of a franchise offering and that allowed for an even more important action. Franchise buyers, for the first time, had more information for pre-purchase due diligence. That said, it’s the personal side of franchising, meaning the selection process of a franchise concept by a buyer and the selection of a franchisee by a franchisor, that will determine the long-term success or failure of a franchise system.

The personal side of franchising continues to dog the industry, but too many franchisors and prospective franchisees continue to ignore it. The consequences of this ignorance drag on. The result is too many unhappy franchisees and too many upset franchise systems. Just Google ‘franchise lawsuits‘ and you’ll be busy reading for a long time.

Here’s a simple example of the problem. A competent franchisor with a great system and flawless legal compliance pushes for franchise sales without regard for vetting new franchisees. To be successful there must be harmony. Without good chemistry, there’s a divorce on the horizon. Hence the onset of trouble. But, the franchisor does not hold all the blame. It’s a two-way street. Know that most franchise buyers conduct little or no pre-purchase due diligence. Franchisors want franchise sales at almost any cost and buyers continue to purchase without fully investigating the concept. It’s a real picture and one always filled with failure. Due diligence is the most sorely lacking aspect of franchising, bar none.

The Franchise Business Operates Under a Couple of Unfortunate Truths …

First, we’ve used this venerable tagline for many years: Just because any business can be franchised doesn’t mean that it should be franchised™. The second one to now add is ‘The absence of due diligence is the greatest source of problems in franchising.’

To be successful in franchising there must be a quality business model with a proven track record. There are ways to measure that. There also has to be an ability to help others be successful. Again, there are ways to measure that. The franchise business is rugged and demanding. Knowing what lies ahead is the best preparation for the journey. Again, that reality applies to both parties. If it sounds to you as though it’s too easy to make a mistake in this area, look at the real news concerning franchise success and failure.

Franchise Business Success is All About Preparation

Preparation for Franchisors

Good preparation takes both personal and business insight. A good candidate for the franchise business will have a good system. Bibby Group has written about ‘franchise business systems‘ for decades. In fact, we coined the term over 30 years ago. It’s now accepted jargon in the industry. When the model is right, the entrepreneur will also be ready IF other factors are in place. This is where proper franchise feasibility is critical. Yes, a lot to think about, and these are just the beginning questions to mull over and answer.

Sound demanding? It is, but with quality help, the road can smooth out in a hurry. Those who tough it out alone find the road not only long and hard, but nearly impassable and they quit. Anyone who wants to franchise a business and does so without competent guidance, does not understand the nuances of early development. It’s necessary to understand those nuances.

Preparation for Franchisees

One must first decide if franchising is a good fit and then decide if a particular concept is a good fit. The Focus Program for Emerging Entrepreneurs is our response to gaining personal insight on those issues. In fact, it’s the ONLY insight process designed to answer two critical questions: Should I be self-employed? And if so, what type of business environment should it be? The Focus Program also offers an outstanding primer on franchising and franchise due diligence.

One Last Franchise Business Truth for All Participants

Whether you’re a prospective franchisee or prospective franchisor, if all the pieces of the puzzle are not present, stop and rethink the proposition. No one except the prospective franchisee should make the ‘go, no go’ decision; not friends, family or consultants. Do your homework and make informed decisions. Growing in the franchise business and growing the legs of a franchisor or a franchisee takes time. Get involved with competent advisers who know the franchise business. Do not get involved with anyone who is going to earn a commission from your purchase. Read more about buying a franchise and franchising a business if you’re looking for more answers.